Question

# Head-First Company plans to sell 4,400 bicycle helmets at \$84 each in the coming year. Unit...

Head-First Company plans to sell 4,400 bicycle helmets at \$84 each in the coming year. Unit variable cost is \$50.40 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is \$19,000 and fixed selling and administrative expense is \$30,300.

 Required: 1. Calculate the variable cost ratio. 2. Calculate the contribution margin ratio. 3. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable cost, and total contribution margin.

 Particulars Amount (\$) 1 Variable cost ratio Variable cost 50.4 Selling price 84 Variable cost ratio = Variable cost/Selling price 60.0% 2 Contribution margin ratio Variable cost 50.4 Selling price 84 Contribution (Selling price-Variable cost) 33.6 Contribution margin ratio (Contribution/Sales) 40%
 3 Contribution margin Income statement Particulars Units Amount (\$) Total % of sales Selling price 4400 84 369600 100.00% Variable cost 4400 50.4 221760 60.00% Contribution 4400 33.6 147840 40.00% Fixed factory overheads 19000 5.14% Fixed selling expenses 30300 8.20% Total fixed overheads 49300 13.34% Net profit 98540 26.66%

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